Professional Association Disability Insurance Programs and the Residual Disability Rider

Sunday, April 21, 2013

Many professionals that purchase their own Individual Disability Insurance policies will at some point look to their Professional Association for guidance, support and available discount programs. Associations like the American Medical Association, American Bar Association, American Veterinary Medical Association, American Institute of CPAs and American Dental Association offer Disability insurance programs at a discounted premium. Consumers should be aware however that there are a few concerns to consider when it comes to Association Disability insurance. In many cases, these policies are inferior to those offered directly from insurance carriers.

The first concern is regarding the renewability provision included in Association programs vs. that which is available on an individual basis. Typically, Association programs are Guaranteed renewable but not Noncancellable, which means that the premiums are not technically guaranteed to remain level for the duration of the policy life. Although this is not the biggest concern since many of these associations have never increased their premiums in the past, having a guarantee creates a different and greater level of comfort.

The second concern is in regard to the definition of total disability. Most Association programs have limitations on the definition of disability they offer. Although some of them may have their own version of the True Own Occupation definition of disability, it is likely to be less favorable than that which is offered with individual contracts. Regardless of what occupation a person has, having Own-Occupation income protection is always better than not having it. Consumers should be cautious of sales professionals recommending that these more comprehensive definitions are not important. In reality no one knows which definition of disability is the necessary one until a debilitating injury or illness has already occurred. When it comes to protecting a person's income, family, future and livelihood, the more cautious route can never be a bad thing.

Perhaps the most important factor that professionals should be aware of with Association Disability insurance is the structure of the Residual Disability rider that is offered. Residual Disability benefits are meant to cover partial disability claims where a professional has incurred a 20% or greater loss of income due to an illness or injury. Considering that the vast majority of Long-Term Disability claims are due to illness and not injury, the structure of a policy's residual benefits can be very important.

Most illnesses do not just appear over night, instead they progressively worsen over time.

Strangely enough though, many Association Disability programs offer residual disability benefits which require the insured to experience a period of total Disability prior to benefits being payable. Unlike Association Disability policies, individual Disability policies do not require a person to experience a total disability before paying residual benefits. Although every claim can be different, the residual benefit design used by Association Disability programs could deprive a claimant of benefits that would otherwise be paid with an individual policy purchased directly from an insurance carrier.

Having Disability insurance is an important part of any wise financial plan, but is not something that should be rushed into. When purchasing Disability insurance, you should work with an expert in the field who can assist you in understanding the various options available to you. Do not purchase your income protection solely based on pricing as there are many fine policies that can be purchased at an affordable cost.